Mortgage Scam Broken Up, Prosecutors Say

SAN DIEGO (CN) – A fugitive loan broker was arrested Thursday in Las Vegas and accused, with two alleged accomplices, of running an $11 million mortgage scam from which they skimmed $1.5 million in kickbacks, the U.S. Attorney’s Office said.

Mary Armstrong, a 51-year-old unlicensed mortgage broker from Las Vegas, was arrested on a sealed May 10 indictment, which was unsealed Thursday, prosecutors said in a statement. Charged with her are Teresa Rose, 57, of Ramona, a real estate agent, and Armstrong’s assistant, William Fountain, 56, of Los Angeles. They are charged with running ads in the L.A. Times and online, claiming “investors” could buy houses with no money down, and that they, the defendants, would make the mortgage payments using rental income and management fees from the properties. “In reality, these so-called investors were nothing more than straw buyers who were promised $10,000 for each property purchased as part of the scheme,” prosecutors said in the statements. “The defendants were able to secure mortgages for the properties by falsifying loan applications for the straw buyers. Among other things, the loan applications falsely claimed exorbitant income from fake employers and used sham companies to verify the borrowers’ fabricated employment and rental histories. The defendants went so far as to include fake W-2s and pay stubs to support the income claims. The defendants used these loan applications to obtain mortgages with 100 percent financing – and thus avoided having to make any down payment on the properties.” Most of the money they made was by persuading sellers to inflate the purchase price by $100,000 a pop, which money the defendants claimed they would use to improve the properties, prosecutors said. But they never did the improvements: “The defendants pocketed this money, made few if any mortgage payments, and allowed nearly all of the properties to swiftly fall into foreclosure,” the U.S. attorney said. The defendants bought at least 16 properties in Ramona and El Cajon, Calif., and in Washington state, and got more than $11 million in mortgage loans, from which they skimmed more than $1.5 million in the sham construction scheme, and hundreds of thousands of dollars more in commissions and fees, prosecutors said. A fourth defendant, Justin Mensen, pleaded guilty to conspiracy in April, the U.S. attorney said.Rose pleaded guilty on May 30, and Fountain, who was arrested in Los Angeles on May 25, has pleaded not guilty, prosecutors said.